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2015 (3) TMI 1277 - ITAT MUMBAIDisallowance u/s.14A r.w.r.8D - Held that:- No merit in the disallowance so made by the AO, insofar as rule 8D can be applied only when assessee has claimed certain expenditure against earning of exempt income. In the instant case, the AO has made disallowance under Rule 8D on the plea that the assessee has made investment in partnership firm, income of which is exempt. We found that on the capital so invested in the partnership firm, the assessee has earned substantial interest income which is liable to tax. As per the audited profit and loss account placed in the record, we found that assessee has earned gross interest income of ₹ 2,51,65,257/- and paid interest of ₹ 80,17,792/- which resulted into net interest income of ₹ 1,71,47,465/-. Most of the investment was out of interest free funds available with it and even in respect of the part of the investment made out of borrowings, since the assessee has earned interest income thereon which was more than what was paid against the borrowing, no disallowance is warranted under rule 8D. AO is empower to make disallowance u/s.14A r.w.r.8D only if the assessee has debited certain interest expenditure which are attributable to earning the exempt income. In case the assessee has not claimed any interest expenditure attributable to earning exempt income, no disallowance is warranted under rule 8D. For the administrative expenses claimed in the profit and loss account, we found that assessee has earned taxable income of ₹ 1,71,52,765/- and after claiming such expenses offered not taxable income of ₹ 1,68,36,770/-. Thus, it is clear that entire administrative expenses are attributable to earning of the taxable income. It is pertinent to mention here that no exempt income was earned by assessee during the year under consideration, therefore, disallowance merely on the presumption that in future assessee may earn exempt income is not taxable when assessee has not claimed any expenditure in its profit and loss account for earning of exempt income. Accordingly, we reverse the order of both the lower authorities and direct the AO to delete the disallowance made u/s.14A r.w.r.8D. - Decided in favour of assessee.
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